Direct and Indirect taxes

In this article we will let you know about the Difference between direct and indirect taxes and Similarities.

What does direct taxes mean?

direct taxes are a type of taxation that falls on people’s income or assets. This means that it applies to the taxpayer and cannot be transferred to other entities. The most common direct taxes are income taxes, such as personal tax (IRPF) in Spain; Corporate Tax for companies; General Indirect Tax (IGIC) in the Canary Islands, etc. The great fiscal advantages associated with these direct taxes are their great efficiency and administrative simplicity since there is only one body in charge of managing them: Public Treasury. Furthermore, they are based on equitable principles and progressivity in terms of the tax burden, which means greater benefits for citizens with lower economic capacity.

What does indirect taxes mean?

indirect taxes are those taxes that are charged to consumers of goods and services. This means that the tax is not paid directly by the taxpayer, but is incorporated into the price of the product or service purchased. The main examples of this type of taxation are VAT (Value Added Tax), special taxes, such as gasoline, tobacco or some alcoholic beverages; as well as certain municipal taxes for specific commercial activities. The main advantage of this methodology is the reduction of the administrative cost for its collection since it is integrated into a previously existing natural process.

Similarities between direct taxes and indirect taxes

Both terms, direct taxes and indirect taxes, They refer to taxes that are generally destined for the State and are collected by it. The main difference between them is that direct taxes are paid directly by the taxpayer, while indirect taxes are charged on the cost of a good or service. Both forms of tax collection fulfill the main function of the State, collection, but sometimes they can be mentioned as regressive since they remain in a greater proportion for those people with lower incomes. It should also be noted that both types generate abusive bureaucracy and corruption if there are not enough adequate controls.

Differences between direct taxes and indirect taxes

direct taxes are those taxes paid by taxpayers in relation to their personal or business situation, such as personal income tax or corporate income tax. . They are linked to the economic capacity of the taxpayer and are collected directly from the person who must pay them. For their part, indirect taxes are collected through consumption by the end user, thus being a deferred taxation that covers general expenses for society. Among them would be VAT (Value Added Tax) and municipal taxes.